CB deficit implies new tax reform

[NewsWhore]

The government proposal to emit internal bonds in order to re-capitalize the Central Bank and reduce its deficit would make a new tax reform necessary, because the funds to be paid out as interest have to be provided for. Diario Libre reports that the Central Bank currently has certificates worth over RD$161 billion and rising, because it needs to pay the interest they generate every year - a sum of approximately RD$28 billion. The yearly interest payment is what is known as the "quasi-fiscal deficit" and in order to pay it, the Central Bank has been emitting new certificates. The government would have to transfer this amount to stop and reduce the stock of certificates. Last week, Central Bank Governor Hector Valdez Albizu announced that the government would be issuing internal bonds, to transfer them to the Bank and pay interest on them. Those interests will compensate the quasi-fiscal deficit generated by the stock of certificates every year and would prevent it from continuing to grow. According to economist and business consultant Jose Luis de Ramon, the government would have to apply a new tax reform that guaranteed the resources to pay the interests. He regrets the fact that the Dominican people will have to pay the cost of this quasi-fiscal deficit through more taxes. The head of the PRD's economic team, Arturo Martinez Moya believes that tax reform could be lower if the government adopts a policy of saving at least RD$15 billion annually. That way the reform would only have to generate a further RD$10 or RS$13 billion. Former Central Bank Governor and PRSC leader Luis Toral believes that the proposal would only contribute to increasing the taxes paid by Dominicans and increase the country's debt.

More... (http://www.dr1.com/index.html#6)